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Docket No. 92215-Agenda 9-November 2002.

GOLDEN RULE INSURANCE COMPANY, Appellee, v. MARK

SCHWARTZ, Appellant.

Opinion filed January 24, 2003.

JUSTICE FREEMAN delivered the opinion of the court:

In July 1985, plaintiff, Golden Rule Insurance Company, filedan action in the circuit court of Lawrence County, seeking adeclaration that it was entitled to rescind a health insurance policyit had issued to defendant, Mark Schwartz. Defendantsubsequently filed a countersuit in the action. In 1997, the causewas transferred to the circuit court of Cook County. Ultimately,the circuit court granted summary judgment in defendant's favoron the declaratory judgment action and on the first count ofdefendant's counterclaim. The circuit court also ruled thatdefendant was entitled to sanctions under section 155 of theIllinois Insurance Code and therefore granted summary judgmenton that issue as well. The circuit court awarded defendant$447,074 in damages. Both parties filed cross-appeals from thecircuit court's ruling.

The appellate court held that the circuit court's entry ofsummary judgment in defendant's favor in the declaratoryjudgment action was erroneous and reversed and remanded thematter for further proceedings. 323 Ill. App. 3d 86. We granteddefendant's petition for leave to appeal (177 Ill. 2d R. 315(a)), andnow affirm in part and vacate in part the appellate court'sjudgment.

BACKGROUND

In the spring of 1985, defendant was a 23-year-old full-timemedical student. Due to defendant's age, his father, SpencerSchwartz (Spencer), inquired of his insurance broker aboutinsurance coverage for defendant. The broker sent Spencerseparate Golden Rule applications for defendant and the rest ofSpencer's family. The broker advised Spencer that defendantwould have to be covered under a separate policy becausedefendant was too old to be covered as a dependent under a familypolicy. On March 11, 1985, the broker filled out the Golden Ruleapplications while Spencer, on defendant's behalf, answered thequestions on the telephone.

Question 9 on the application asks: "Are any persons namedin #1 [proposed insured] covered by, or has application been madefor, any type of Life, Disability, or Medical Insurance?" Thisquestion was answered in the negative. The application containsthe following information with respect to other insurance:

"This policy will not be issued as a supplement to otherhealth plans that you may have at the time of application.Medical payment provisions under liability policies andsmall cancer only policies do not affect our underwriting.A misstatement in the application about other medicalinsurance may cause us to void the policy. If, after thepolicy is issued, you are covered by other plans, thebenefits paid under these other plans may be used to helpsatisfy the deductible and 20% coinsurance ***. Otherplans are all policies and plans that provide benefits forhospital, surgical, or medical expenses, includingindividual and family policies, group programs, unionprograms, automobile medical payments insurance,Medicare and others."

The application also includes the following statement just abovethe signature line:

"I represent that the statements and answers in thisapplication are true and complete to the best of myknowledge and belief. I agree that *** the statements andanswers given in this application and any amendments toit will form the basis of any insurance issued."

Based on the application, Golden Rule issued a health insurancepolicy in defendant's name which became effective on March 14,1985.

On March 24, 1985, defendant suffered serious injuries in anautomobile accident which took place in New York. As a result,Spencer reviewed his insurance policies and realized thatdefendant was covered not only by the Golden Rule policy, butwas also an "eligible dependent" under a policy Spencer held withMutual of Omaha. The Mutual of Omaha policy was a grouppolicy held through the American Bar Endowment and was issuedto Spencer in 1973. Defendant submitted claim forms to bothMutual of Omaha and Golden Rule.

During its investigation of the claim, Golden Rule learned ofthe existence of the Mutual of Omaha policy. Based on this,Golden Rule decided to rescind its policy, which prompted theinstant litigation. In its declaratory judgment action, Golden Rulealleged that defendant's failure to disclose the Mutual of Omahapolicy constituted a material misrepresentation which justifiedrescission of the policy. Defendant filed a countersuit, in which heclaimed, inter alia, that Golden Rule (i) was not entitled to offsetdamages with medical payments made by other insurancecompanies, (ii) engaged in improper claims practices whichallowed for attorney fees under section 155 of the IllinoisInsurance Code and (iii) breached its contract with defendantwhich entitled defendant to a recovery of all damages reasonablyforseeable as a result of the breach.

The circuit court initially concluded that, as a matter law,defendant did not make a material misrepresentation on theapplication with respect to question 9. As to the claims made indefendant's countersuit, the circuit court granted defendantsummary judgment, ruling that Golden Rule could not offsetdamages with payments made by other insurers. The circuit courtalso ruled that defendant was entitled to sanctions under section155, but was not entitled to pro se attorney fees. As for the breachof contract claim, the circuit court found defendant entitled torecover the premiums he paid for comparable replacementcoverage, but was not entitled to any prejudgment interest. Thecase was thereafter set for a bench trial in order to determinedamages, after which judgment was entered in defendant's favorin the amount of $447,074. The circuit court reserved the issue ofattorney fees and added Supreme Court Rule 304(a) language inits order, making it immediately appealable.

On appeal, Golden Rule challenged the circuit court'sdecision, arguing that it was entitled to rescind its policy due todefendant's material misrepresentation on the application. GoldenRule also contended that sanctions should not have been awardedin this case. Defendant filed a cross-appeal in which he maintainedthat the circuit court erred in finding that prejudgment interest wasnot appropriate in this case. Defendant further argued that thecircuit court erred in refusing to award pro se attorney fees assanctions.

The appellate court reversed the circuit court's entry ofsummary judgment in favor of defendant on the misrepresentationissue. The appellate court held that a misrepresentation "made ingood faith or resulting from a mistake of the applicant is enoughto avoid the contract if it was material to the risk assumed by theinsurance company." 323 Ill. App. 3d at 93. In reaching thisconclusion, the appellate court relied upon section 154 of theInsurance Code, which provides that an insurance contract may bevoided on the basis of a misrepresentation that is either intentionalor material. 323 Ill. App. 3d at 92-94. The court concluded thatwhether the misrepresentation in this case was material, however,was a question of fact which precluded the entry of summaryjudgment. 323 Ill. App. 3d at 96-99. The appellate court also ruledthat the misrepresentation issue in the case constituted a bona fidedispute which precluded an award of sanctions under section 155.323 Ill. App. 3d at 99-100. Although the appellate court remandedthe cause on the rescission issue, it commented briefly on severalother issues which it believed likely to "reappear"-namely thatGolden Rule was entitled to an offset and that defendant was notentitled to prejudgment interest. 323 Ill. App. 3d at 101.

ANALYSIS

We begin our discussion by noting that summary judgment isappropriate when "the pleadings, depositions, and admissions onfile, together with the affidavits, if any, show that there is nogenuine issue as to any material fact and that the moving party isentitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c)(West 2000); Petrovich v. Share Health Plan of Illinois, Inc., 188Ill. 2d 17, 30-31 (1999). The purpose of summary judgment is notto try a question of fact, but to determine if one exists. Robidouxv. Oliphant, 201 Ill. 2d 324 (2002). Our review of an ordergranting summary judgment is de novo. Morris v. Margulis, 197Ill. 2d 28, 35 (2001).

Defendant argues that he did not make a misrepresentation onthe Golden Rule application because his answers were given onthe basis of his "knowledge and belief." He contends that theappellate court "completely disregarded" the "to the best of yourknowledge and belief" language and, as a result, misappliedsection 154 of the Insurance Code to this case.

We believe it unfair of defendant to characterize the appellatecourt as having "completely disregarded" the knowledge andbelief language contained in the application. The appellate courtdid not consider the language's effect on the case becausedefendant did not ask it to do so. In fact, defendant never arguedthat this language played any role in the analysis of this issue untilhe filed his petition for rehearing in the appellate court. "Questionsnot raised in the trial court cannot be argued for the first time onappeal." Ragan v. Columbia Mutual Insurance Co., 183 Ill. 2d342, 355 (1998). Not surprisingly, Golden Rule encourages us toapply this rule here.

The rule of waiver, however, serves as a limitation on theparties and not the court. This court "is not precluded fromconsidering issues not properly preserved by the parties, andindeed has 'the responsibility *** for a just result and for themaintenance of a sound and uniform body of precedent [that] maysometimes override the considerations of waiver that stem fromthe adversary character of our system.' " Jackson Jordan, Inc. v.Leydig, Voit & Mayer, 158 Ill. 2d 240, 251 (1994), quoting Hux v.Raben, 38 Ill. 2d 223, 225 (1967). We believe that this case fallswithin this exception, and we therefore address the issue on itsmerits.

In determining the effects of a misrepresentation on aninsurance coverage application, section 154 of the Insurance Codeprovides that:

"No misrepresentation or false warranty made by theinsured or in his behalf in the negotiation for a policy ofinsurance *** shall defeat or avoid the policy or preventits attaching unless such mispresentation, false warrantyor condition shall have been stated in the policy orendorsement or rider attached thereto, or in the writtenapplication therefor. No such misrepresentation or falsewarranty shall defeat or avoid the policy unless it shallhave been made with actual intent to deceive or materiallyaffects either the acceptance of the risk or the hazardassumed by the company." 215 ILCS 5/154 (West 1998).

The statute establishes a two-prong test to be used in situationswhere insurance policies may be voided: the statement must befalse and the false statement must have been made with an intentto deceive or must materially affect the acceptance of the risk orhazard assumed by the insurer. Campbell v. Prudential InsuranceCo. of America, 15 Ill. 2d 308 (1958); Weinstein v. MetropolitanLife Insurance Co., 389 Ill. 571 (1945). Under the statute,therefore, a misrepresentation, even if innocently made, can serveas the basis to void a policy. Campbell, 15 Ill. 2d at 312.

We note that section 154 is representative of statutes which"are designed to relieve against the rigorous consequences of thecommon-law rules as to warranties and misrepresentationsconcerning insurance, particularly if made in good faith with nointent to deceive and in relation to a matter which does notincrease the risk or contribute to the loss." 43 Am. Jur. 2dInsurance